the takeover panel consultation paper issued by the … · 2019. 2. 22. · a statement in relation...

PCP 2015/1 11 May 2015

THE TAKEOVER PANEL

CONSULTATION PAPER ISSUED BY

THE CODE COMMITTEE OF THE PANEL

DIVIDENDS

The Code Committee of the Takeover Panel (the “Panel”) invites comments on this Public

Consultation Paper. Comments should reach the Code Committee by Friday, 12 June 2015.

Comments may be sent by e-mail to:

[email protected]

Alternatively, please send comments in writing to:

The Secretary to the Code Committee

The Takeover Panel

10 Paternoster Square

London

EC4M 7DY

Telephone: +44 (0) 20 7382 9026

All responses to formal consultation will be made available for public inspection and published

on the Panel’s website at www.thetakeoverpanel.org.uk, unless the respondent explicitly requests

otherwise. A standard confidentiality statement in an e-mail message will not be regarded as a

request for non-disclosure. Personal information, such as telephone numbers or e-mail

addresses, will not be edited from responses.

mailto:[email protected]

http://www.thetakeoverpanel.org.uk/

CONTENTS

Page

1. Introduction and summary of proposals

1

2. Reserving the right to reduce the offer consideration if a dividend is paid

5

3. Effect of a dividend where the offeror has made a “no increase statement”

11

4. Impact of dividends on a minimum offer price established by share purchases

14

5. Assessment of the impact of the proposals

21

APPENDIX A Proposed amendments to the Code

22

APPENDIX B List of questions

29

APPENDIX C Draft Practice Statement

30

1

1. Introduction and summary of proposals

(a) Introduction

1.1 In this Public Consultation Paper (“PCP”), the Code Committee of the Panel (the

“Code Committee”) proposes amendments to the Takeover Code (the “Code”) in

relation to the treatment of dividends paid by an offeree company to its

shareholders.

1.2 The proposed amendments are intended primarily to clarify the application of

existing provisions of the Code and to ensure greater alignment of the Code with

the existing practice of the Panel Executive (the “Executive”). The Code

Committee believes that clarifying, codifying and updating the application of the

Code to the treatment of dividends paid by an offeree company will be beneficial

to parties to offers, shareholders and other stakeholders, market participants and

practitioners.

(b) Summary of proposals

(i) Reserving the right to reduce the offer consideration if a dividend is paid

1.3 In Section 2 of the PCP, the Code Committee proposes to introduce new Notes on

Rule 2.5 (with regard to possible offer announcements), Rule 2.7 (with regard to

firm offer announcements) and Rule 24.3 (with regard to offer documents) which

would provide that:

(a) an offeror may reserve the right to reduce the offer consideration by the

amount of all or part of a dividend subsequently paid by the offeree

company; and

2

(b) if an offeror does not reserve that right in each of (i) any statement in

relation to the terms of a possible offer (if made), (ii) its firm offer

announcement, and (iii) the offer document, it will not normally be

permitted to reduce the offer consideration by all or part of a dividend

which is subsequently paid by the offeree company.

(ii) Effect of a dividend where the offeror has made a “no increase statement”

1.4 In Section 3 of the PCP, the Code Committee proposes to introduce new Notes on

Rule 2.5 and Rule 32.2 which would make clear that an offeror which has made a

“no increase statement” must reduce the value of its offer by the amount of any

dividend subsequently paid by the offeree company, unless a specific reservation

was included in the “no increase statement” which provided that offeree company

shareholders would be entitled to receive the dividend.

(iii) Impact of dividends on a minimum offer price established by share purchases

1.5 In Section 4 of the PCP, the Code Committee proposes to replace Note 5 on

Rule 6, Note 4 on Rule 9.5 and Note 9 on Rule 11.1 with new Notes in order to

clarify how dividends are treated in calculating the minimum offer value which

may be established by the acquisition of interests in offeree company shares by an

offeror or any person acting in concert with it.

(c) Interpretation

1.6 Unless the context otherwise requires, words and expressions defined in the Code

have the same meanings when used in this PCP. In addition, the following

expressions used in this PCP have the following meanings:

(a) “cum dividend”: shares which trade “cum dividend” carry the right to

receive a particular dividend which has been announced. Shares trade on

3

this basis from the date on which the dividend is announced until the “ex

dividend” date relating to the dividend; and

(b) “ex dividend”: shares which trade “ex dividend” do not carry the right to

receive the relevant dividend. Shares trade on this basis from the “ex

dividend” date relating to the dividend until the date on which it is paid.

(d) Invitation to comment

1.7 The Code Committee invites comments on the amendments to the Code proposed

in this PCP. Comments should reach the Code Committee by Friday, 12 June

2015 and should be sent in the manner set out at the beginning of this PCP.

1.8 The full text of the proposed amendments is set out in Appendix A. Where

amendments are proposed, underlining indicates proposed new text and striking-

through indicates text that is proposed to be deleted. For ease of reference, a list

of the questions that are put for consultation is set out in Appendix B.

(e) Executive Practice Statement

1.9 The Executive has informed the Code Committee that it intends to publish a

Practice Statement in order to set out in one place the Executive’s practice in

relation to the application of certain provisions of the Code to the payment of

dividends by an offeree company. In addition to its practice in relation to the

provisions of the Code which are the subject of this PCP, the Practice Statement

would also address the Executive’s application of Rule 21.2 (Inducement fees and

other offer-related arrangements) in relation to the payment of dividends by an

offeree company.

1.10 The Code Committee understands that the Executive intends to publish the

Practice Statement at the same time as any amendments to the Code proposed in

4

this PCP come into effect. However, the Executive considers that it would be

helpful to provide details of the contents of the draft Practice Statement at the

same time as this PCP is published. Accordingly, a copy of the draft Practice

Statement, which is drafted as if the amendments proposed in this PCP had come

into effect, is set out in Appendix C.

5


2.1 The payment of a dividend by an offeree company may affect the financial terms

on which an offeror wishes to make or proceed with an offer. In particular, an

offeror will usually wish to protect itself against value leakage from the offeree

company caused by the payment of a dividend by reserving the right to reduce the

offer consideration if a dividend is paid to offeree company shareholders.

However, an offeror may be prepared to allow offeree company shareholders to

receive a specific dividend in addition to receiving the offer consideration.

2.2 Rule 2.5(a) provides that the Panel must be consulted in advance if, prior to the

announcement of a firm intention to make an offer, any person proposes to make

a statement in relation to the terms on which an offer might be made for the

offeree company. If a potential offeror makes such a statement (or agrees to the

offeree company making such a statement) and it is not withdrawn immediately if

incorrect, the potential offeror will be bound by the statement if an offer for the

offeree company is subsequently made except:

(a) where, at the time the statement was made, it specifically reserved the

right not to be so bound in certain circumstances and those circumstances

subsequently arise; or

(b) in wholly exceptional circumstances.

In particular, Rule 2.5(a)(i) provides that, where the statement concerned relates

to the price of a possible offer, any offer made by the potential offeror for the

offeree company will be required to be made on the same or better terms.

2.3 The purpose of Rule 2.5(a)(i) is to ensure that market participants are able to rely

on statements made by a potential offeror in relation to the value of its possible

offer and to make their investment decisions on the basis that any offer, if made,

6

will not be less than the amount stated (save where a specific reservation applies

or in wholly exceptional circumstances).

2.4 The first paragraph of Note 1 on Rule 2.5 provides that the first announcement in

which a statement subject to Rule 2.5(a) is made must contain prominent

reference to any reservation to set it aside and that any subsequent mention by the

potential offeror of the statement must be accompanied by a reference to the

reservation.

2.5 The Code Committee considers that the Code should expressly permit an offeror,

in a statement to which Rule 2.5(a)(i) applies, to reserve the right to reduce the

offer consideration by the amount of all or part of a dividend which is

subsequently paid by the offeree company (for example, the potential offeror may

wish to reserve the right to reduce the offer consideration by the amount by which

a subsequent dividend exceeds a dividend previously announced or forecast).

2.6 If such a reservation is included in a statement to which Rule 2.5(a) applies, the

Code Committee considers that the Code should permit the potential offeror to

include the same reservation in any subsequent firm offer announcement or offer

document. This would be an exception to the final paragraph of Note 1 on

Rule 2.5, which provides that, once it has announced a firm intention to make an

offer, an offeror will not be permitted to exercise any right it had previously

reserved to set aside a statement in relation to the level of consideration that it

might offer.

2.7 Conversely, the Code Committee considers that, where a reservation in relation to

the payment of a dividend is not included in any statement to which Rule 2.5(a)

applies, the potential offeror should not normally be permitted to:

7

(a) reserve the right, in any subsequent firm offer announcement or offer

document, to reduce the offer consideration by the amount of all or part of

a dividend which is subsequently paid by the offeree company; or

(b) reduce the offer consideration by the amount of all or part of a dividend


2.8 However, the Code Committee considers that, where a potential offeror

announces an increased possible or firm offer, the Code should permit it, at that

time, to introduce a reservation of the right to reduce the offer consideration by

the amount of all or part of a dividend which is subsequently paid by the offeree

company, provided that the offeror does not propose to reduce the offer

consideration below the value of the previous offer which was not subject to the

reservation.

2.9 The Code Committee considers that the ability of an offeror to reserve such a

right, and the consequences of not doing so, should be set out in a new Note 4 on

Rule 2.5 and that similar provisions should also be included in a new Note 4 on

Rule 2.7 (in relation to an offeror reserving the right to reduce the offer

consideration in a firm offer announcement) and in a new Note 5 on Rule 24.3 (in

relation to an offeror reserving the right to reduce the offer consideration in an

offer document).

2.10 In addition, the Code Committee considers that the proposed new Note 4 on

Rule 2.7 and the proposed new Note 5 on Rule 24.3 should provide that, if an

offeror includes a term of its offer which provides that it shall be entitled to

receive any dividend paid by the offeree company after a specified date, it must

expressly reserve the right to reduce the offer consideration by the amount of the

dividend. This is to ensure that, if an offeror wishes to reduce the offer

consideration by the amount of any dividend which is paid to offeree company

shareholders, it will do so pursuant to the exercise of a clear reservation of the

8

right to reduce the offer consideration, rather than pursuant to a term which does

not expressly refer to the effect of the payment of any dividend on the offer

consideration.

2.11 In view of the above, the Code Committee proposes:

(a) to introduce a new Note 4 on Rule 2.5, as follows:

“4. Reserving the right to reduce the offer if the offeree company pays a dividend

A potential offeror may, in a statement to which Rule 2.5(a)(i) applies, reserve the right to reduce the offer consideration by the amount of all or part of a dividend which is subsequently paid by the offeree company. If such a reservation is included in a statement to which Rule 2.5(a)(i) applies, the potential offeror may include the same reservation in any subsequent firm offer announcement or offer document. Where a reservation in relation to the payment of a dividend is not included in any statement to which Rule 2.5(a)(i) applies, the potential offeror will not normally be permitted to: (a) reserve the right, in any subsequent firm offer announcement or offer document, to reduce the offer consideration by the amount of all or part of a dividend which is subsequently paid by the offeree company; or (b) reduce the offer consideration by the amount of all or part of a dividend which is subsequently paid by the offeree company. However, where a potential offeror announces an increased possible or firm offer, it may, at that time, introduce a reservation of the right to reduce the offer consideration by the amount of all or part of a dividend which is subsequently paid by the offeree company, provided that it does not propose to reduce the offer consideration below the value of the previous possible offer which was not subject to the reservation.”;

(b) to amend the final paragraph of Note 1 on Rule 2.5, as follows:

“Except for a reservation relating to the payment of a dividend by the offeree company (see Note 4), oOnce it has announced a firm intention to make an offer, an offeror will not be permitted to exercise any right it had

9

previously reserved either to set aside a statement in relation to the level of consideration that it might offer or to vary the form and/or mix of the consideration.”;

(c) to introduce a new Note 4 on Rule 2.7, as follows:


An offeror may reserve the right in its firm offer announcement to reduce the offer consideration by the amount of all or part of a dividend which is subsequently paid by the offeree company, provided that any statement to which Rule 2.5(a)(i) applied included the same reservation. Where a reservation in relation to the payment of a dividend is not included in a firm offer announcement, the offeror will not normally be permitted to: (a) reserve the right in a subsequent offer document to reduce the offer consideration by the amount of all or part of a dividend which is subsequently paid by the offeree company; or (b) reduce the offer consideration by the amount of all or part of a dividend which is subsequently paid by the offeree company. However, where an offeror announces an increased offer, it may, at that time, introduce a reservation of the right to reduce the offer consideration by the amount of all or part of a dividend which is subsequently paid by the offeree company, provided that it does not reduce the offer consideration below the value of the previous offer which was not subject to the reservation. If an offeror includes a term of its offer which provides that it shall be entitled to receive any dividend paid by the offeree company after a specified date, it must expressly reserve the right to reduce the offer consideration by the amount of the dividend in accordance with this Note.”; and

(d) to introduce a new Note 5 on Rule 24.3, as follows:


10

An offeror may reserve the right to reduce the offer consideration by the amount of all or part of a dividend which is subsequently paid by the offeree company, provided that any statement to which Rule 2.5(a)(i) applied and the firm offer announcement included the same reservation. Where a reservation in relation to the payment of a dividend is not included in an offer document, the offeror will not normally be permitted to reduce the offer consideration by the amount of all or part of a dividend which is subsequently paid by the offeree company. However, where an offeror announces an increased offer, it may, at that time, introduce a reservation of the right to reduce the offer consideration by the amount of all or part of a dividend which is subsequently paid by the offeree company, provided that it does not reduce the offer consideration below the value of the previous offer which was not subject to the reservation. If an offeror includes a term of its offer which provides that it shall be entitled to receive any dividend paid by the offeree company after a specified date, it must expressly reserve the right to reduce the offer consideration by the amount of the dividend in accordance with this Note.”.

2.12 In addition, a cross-reference to the new Note 5 on Rule 24.3 would be introduced

at the end of Rule 24.3(d)(iv), as set out in Appendix A.

Q1 Should Note 4 on Rule 2.5, Note 4 on Rule 2.7 and Note 5 on Rule 24.3 be introduced, and Note 1 on Rule 2.5 amended, as proposed?

11


3.1 Rule 2.5(a)(ii) provides that, where a statement subject to Rule 2.5(a) includes

reference to the fact that the terms of the possible offer “will not be increased” or

are “final” or uses a similar expression, the potential offeror will not be allowed

subsequently to make an offer on better terms. This is subject to the exception

provided in Rule 2.5(a) that a potential offeror will not be bound by such a

statement:

(a) where, at the time the statement was made, it specifically reserved the

right not to be so bound in certain circumstances and those circumstances



3.2 Similarly, Rule 32.2 provides that, if an offeror which has announced a firm offer

makes such a “no increase statement”, the offeror will not be allowed

subsequently to amend the terms of its offer in any way, even if the amendment

would not result in an increase in the value of the offer, except:

(a) where, at the time the no increase statement was made, it specifically

reserved the right to do so in certain circumstances and those

circumstances subsequently arise; or


3.3 The Code Committee considers that, where such a statement is made, market

participants should be entitled to rely on the statement and to make their

investment decisions on the basis that the offer is final and that additional value

above the stated final offer price will not be provided to offeree company

shareholders under the offer or otherwise.

12

3.4 The Code Committee understands that it is the Executive’s practice, where a

potential offeror has made a statement to which Rule 2.5(a)(ii) applies, or an

offeror has made a no increase statement under Rule 32.2, and the offeree

company subsequently pays a dividend, then to require the potential offeror or

offeror to reduce the offer consideration by an amount equal to that dividend so

that the overall value receivable by the offeree company shareholders remains the

same, unless a specific reservation was included in the relevant statement which

provided that shareholders would be entitled to receive the specific dividend that

was paid in addition to the offer consideration. The Code Committee considers

that this should be made clear in the Code.

3.5 The Code Committee therefore proposes:

(a) to introduce a new Note 5 on Rule 2.5, as follows:

“5. Requirement to reduce the offer if the potential offeror has made a statement to which Rule 2.5(a)(ii) applies and the offeree company pays a dividend

Where a potential offeror has made a statement to which Rule 2.5(a)(ii) applies and the offeree company subsequently pays a dividend, the potential offeror will normally then be required to reduce the offer consideration by an amount equal to the dividend so that the overall value receivable by the offeree company shareholders remains the same, unless a specific reservation was included in the relevant statement which provided that shareholders would be entitled to receive, in addition to the offer consideration, the specific dividend that was paid.”; and

(b) to introduce a new Note 6 on Rule 32.2, as follows:

“6. Requirement to reduce the offer if the offeror has made a “no increase statement” and the offeree company pays a dividend

Where an offeror has made a “no increase statement” and the offeree company subsequently pays a dividend, the offeror will normally then be required to reduce the offer consideration by an amount equal to the

13

dividend so that the overall value receivable by the offeree company shareholders remains the same, unless a specific reservation was included in the relevant statement which provided that shareholders would be entitled to receive, in addition to the offer consideration, the specific dividend that was paid.”.

Q2 Should Note 5 on Rule 2.5 and Note 6 on Rule 32.2 be introduced as proposed?

14

4. Impact of dividends on a minimum offer price established by share

purchases

(a) Introduction

4.1 Rules 6, 9.5 and 11.1 set out provisions relating to the minimum amount, and

form, of offer consideration where the offeror (or any person acting in concert

with it) has acquired interests in offeree company shares during certain specified

periods. Broadly, the consideration offered must be at no less than the highest

price paid by the offeror (or any person acting in concert with it) for an interest in

the shares of the offeree company during the relevant period or during the offer

period.

(b) Where offeree company shareholders are entitled to receive a dividend in

addition to the offer consideration

4.2 Note 5 on Rule 6 provides that, when accepting shareholders are entitled under

the offer to retain a dividend declared or forecast by the offeree company but not

yet paid, purchases in the market or otherwise by an offeror (or any person acting

in concert with it) may be made at prices up to the net cum dividend equivalent of

the offer value without necessitating any revision of the offer.

4.3 Note 4 on Rule 9.5 and Note 9 on Rule 11.1 provide that, when accepting

shareholders are entitled under the offer to retain a dividend declared or forecast

by the offeree company but not yet paid, the offeror, in establishing the level of

the cash offer, may deduct from the highest price paid the net dividend to which

offeree company shareholders are entitled.

4.4 These provisions ensure that a shareholder who receives the dividend and accepts

the offer receives the same overall value as a shareholder who sells its shares to

the offeror in the circumstances described, in accordance with the requirement in

15

General Principle 1 for shareholders in an offeree company to be afforded

equivalent treatment.

4.5 For example, in relation to Note 5 on Rule 6, if the offeror is offering

consideration of 100 pence in cash and, under the terms of the offer, offeree

company shareholders are entitled to receive an announced dividend of 2 pence

per share in addition to the offer consideration, the offeror will be permitted to

purchase shares which are trading cum dividend for up to 102 pence without

being required to increase its offer. However, after the shares commence trading

ex dividend, the offeror will only be permitted to purchase shares for up to 100

pence if it is to avoid being required to increase its offer.

4.6 The Code Committee considers that Note 5 on Rule 6 should be clearer as to the

period during which shares are regarded as trading cum dividend for the purpose

of the Note. The Code Committee considers that shares should be regarded as

trading cum dividend from the time at which the dividend is “announced” by the

offeree company until the “ex dividend date”. This formulation would replace the

existing wording, which refers to a dividend which has been “declared or forecast

by the offeree company but not yet paid”. The Code Committee proposes to

amend the Note accordingly.

4.7 The Code Committee considers that the term “net cum dividend equivalent”,

which is used in Note 5 on Rule 6 to refer to the maximum amount that an offeror

may pay for offeree company shares without having to increase the value of the

offer, should be clarified. The Code Committee considers that the term is

intended to mean that an offeror may acquire shares at up to an amount equal to

the aggregate of the offer value and the amount of the dividend. The Code

Committee considers that this should be made clearer in the Note.

4.8 In addition, the Code Committee considers that the term “net”, as referred to in

the Note 5 on Rule 6, Note 4 on Rule 9.5 and Note 9 on 11.1, is inappropriate, as

16

it suggests that the tax treatment of the dividend in the hands of offeree company

shareholders could be taken into account. The Code Committee confirms that it is

not the intention that the amount of any tax credit, tax payable or other deduction

should be taken into account in calculating the maximum price that an offeror

may pay for shares without having to increase its offer. Accordingly, the Code

Committee proposes to delete the term “net” from those Notes.

4.9 The Code Committee notes that Note 5 on Rule 6 relates to share purchases which

the offeror might make during the course of an offer, whereas Note 4 on Rule 9.5

and Note 9 on Rule 11.1 relate to share purchases already made. Each of the

Notes is, in practice, applied in both situations (in relation to the respective

periods referred to in Rules 6, 9.5 and 11.1) and the Code Committee considers

that this should be reflected in each of the Notes. Accordingly, the Code

Committee considers that each of Note 5 on Rule 6, Note 4 on Rule 9.5 and Note

9 on 11.1 should provide that, when accepting shareholders are entitled under the

offer to receive and retain, in addition to the offer consideration, a dividend which

has been announced by the offeree company but the ex dividend date has not yet

occurred:

(a) the offeror, in establishing the minimum level of the offer, may deduct

from the highest price paid by it (or any person acting in concert with it)

during the relevant period to which the relevant Rule applies the amount

of the dividend to which offeree company shareholders are entitled; and

(b) once an offer value has been announced, purchases in the market or

otherwise during the cum dividend period by the offeror (or any person

acting in concert with it) may be made at prices up to the aggregate of the

offer value and the amount of the dividend without necessitating any

revision of the offer.

17

In addition, the Code Committee considers that each of the Notes should provide

that purchases in the market or otherwise after the ex dividend date by an offeror

(or any person acting in concert with it) may only be made at prices up to the

amount of the offer value without necessitating any revision of the offer.

(c) Where offeree company shareholders are not entitled to receive a dividend in

addition to the offer consideration

4.10 Note 5 on Rule 6, Note 4 on Rule 9.5 and Note 9 on Rule 11.1 currently only

address the situation where, under the terms of the offer, offeree company

shareholders are entitled to retain a relevant dividend in addition to the full

amount of the offer consideration.

4.11 The Code Committee acknowledges that there may also be situations where

offeree company shareholders are not entitled, under the terms of the offer, to

receive the dividend in addition to the full amount of the offer consideration. In

addition, the Notes do not explain the potential impact on the minimum offer

price of purchasing shares after the ex dividend date.

4.12 Accordingly, the Code Committee considers that each of Note 5 on Rule 6, Note 4

on Rule 9.5 and Note 9 on 11.1 should also provide that, when accepting

shareholders are not entitled under the offer to receive and retain, in addition to

the offer consideration, a dividend which has been announced by the offeree

company:

(a) the offeror, in establishing the minimum level of the offer, may not deduct


during the relevant period to which the relevant Rule applies the amount

of the dividend; and

18


otherwise during the cum dividend period by the offeror (or any person

acting in concert with it) may be made at prices up to the offer value

without necessitating any revision of the offer.

In addition, the Code Committee considers that each of the Notes should provide

that purchases in the market or otherwise after the ex dividend date by an offeror

(or any person acting in concert with it) may only be made at prices up to the

offer value less the amount of the dividend without necessitating any revision of

the offer.

4.13 For example, if the offeror is offering consideration of 100 pence in cash per

share and, under the terms of the offer, offeree company shareholders are not

entitled to receive a dividend of 2 pence per share in addition to the offer

consideration, the offeror may purchase shares which are trading cum dividend

for up to 100 pence without being required to increase its offer.

4.14 If, notwithstanding the terms of the offer, offeree company shareholders become

entitled to receive the dividend by virtue of being on the register of members on

the dividend record date, the offeror may decide to reduce the offer consideration

by the amount of the dividend, provided that it had reserved the right to do so. If

the offer consideration is so reduced, the offeror will be permitted to acquire

shares after the ex dividend date for up to only 98 pence if it is to avoid being

required to increase its offer. This is because, following the ex dividend date,

shareholders will have become entitled to the 2 pence dividend which, when

added to the 98 pence purchase price, would result in a selling shareholder

receiving an aggregate of 100 pence per share. Alternatively, provided the offeror

has not made a “no increase statement”, the offeror may decide to revise its offer

so as to allow offeree company shareholders to keep the 2 pence dividend in

addition to the 100 pence offer consideration, in which event the offeror will be

19

permitted to acquire shares after the ex dividend date for up to 100 pence without

being required to increase its offer.

(d) Conforming the Notes on Rules 6, 9.5 and 11.1

4.15 As indicated above, the Code Committee considers that each of Note 5 on Rule 6,

Note 4 on Rule 9.5 and Note 9 on Rule 11.1 should be in the same terms. Rather

than repeating the entire Note in each of Rules 6, 9.5 and 11.1, the Code

Committee proposes to set out the new Note in full in Note 5 on Rule 6 and to

replace the current Note 4 on Rule 9.5 and the current Note 9 on Rule 11.1 with a

cross-reference to the new Note 5 on Rule 6.

(e) Proposed amendments

4.16 In view of the above, the Code Committee proposes:

(a) to delete the current Note 5 on Rule 6 and replace it with the following:

“5. Treatment of dividends (a) Dividends which accepting shareholders are entitled to receive

and retain When accepting shareholders are entitled under the offer to receive and retain, in addition to the offer consideration, a dividend which has been announced by the offeree company but the “ex dividend” date has not yet occurred: (i) the offeror, in establishing the minimum level of the offer, may deduct from the highest price paid by it (or any person acting in concert with it) during the relevant period to which the Rule applies the amount of the dividend to which offeree company shareholders are entitled; and (ii) once an offer value has been announced, purchases in the market or otherwise during the “cum dividend” period by the offeror (or any person acting in concert with it) may be made at prices up to the aggregate of the offer value and the amount of the dividend without necessitating any revision of the offer.

20

However, purchases in the market or otherwise after the “ex dividend” date by an offeror (or any person acting in concert with it) may only be made at prices up to the amount of the offer value without necessitating any revision of the offer. (b) Dividends which accepting shareholders are not entitled to

receive and retain When accepting shareholders are not entitled under the offer to receive and retain, in addition to the offer consideration, a dividend which has been announced by the offeree company: (i) the offeror, in establishing the minimum level of the offer, may not deduct from the highest price paid by it (or any person acting in concert with it) during the relevant period to which the Rule applies the amount of the dividend; and (ii) once an offer value has been announced, purchases in the market or otherwise during the “cum dividend” period by the offeror (or any person acting in concert with it) may be made at prices up to the offer value without necessitating any revision of the offer. However, purchases in the market or otherwise after the “ex dividend” date by an offeror (or any person acting in concert with it) may only be made at prices up to the offer value less the amount of the dividend without necessitating any revision of the offer.”;

(b) to delete the current Note 4 on Rule 9.5 and replace it with the following:

“4. Treatment of dividends See Note 5 on Rule 6.”; and

(c) to delete the current Note 9 on Rule 11.1 and replace it with the following:

“9. Treatment of dividends See Note 5 on Rule 6.”.

Q3 Should Note 5 on Rule 6, Note 4 on Rule 9.5 and Note 9 on Rule 11.1 be amended as proposed?

21

5. Assessment of the impact of the proposals

5.1 The Code Committee believes that clarifying, codifying and updating the

application of the Code to the treatment of dividends paid by an offeree company

to its shareholders, as proposed, will be beneficial to: parties to offers;

shareholders and other stakeholders; market participants; and practitioners.

5.2 The Code Committee does not believe that the proposed amendments will result

in any significant costs being imposed, given that the amendments are intended to

clarify the application of existing provisions of the Code and to ensure greater

alignment of the Code with the existing practice of the Executive in relation to

dividends paid by an offeree company, rather than introduce any new substantive

requirements.

22

APPENDIX A

Proposed amendments to the Code Rule 2.5

2.5 TERMS AND PRE-CONDITIONS IN POSSIBLE OFFER ANNOUNCEMENTS

… NOTES ON RULE 2.5 1. Reservation of the right to set a statement aside The first announcement in which a statement subject to Rule 2.5(a) is made must contain prominent reference to any reservation to set it aside (precise details of which must be included). Any subsequent mention by the potential offeror of the statement must be accompanied by a reference to the reservation. … Except for a reservation relating to the payment of a dividend by the offeree company (see Note 4), oOnce it has announced a firm intention to make an offer, an offeror will not be permitted to exercise any right it had previously reserved either to set aside a statement in relation to the level of consideration that it might offer or to vary the form and/or mix of the consideration. … 4. Reserving the right to reduce the offer if the offeree company pays a

dividend A potential offeror may, in a statement to which Rule 2.5(a)(i) applies, reserve the right to reduce the offer consideration by the amount of all or part of a dividend which is subsequently paid by the offeree company. If such a reservation is included in a statement to which Rule 2.5(a)(i) applies, the potential offeror may include the same reservation in any subsequent firm offer announcement or offer document. Where a reservation in relation to the payment of a dividend is not included in any statement to which Rule 2.5(a)(i) applies, the potential offeror will not normally be permitted to: (a) reserve the right, in any subsequent firm offer announcement or offer document, to reduce the offer consideration by the amount of all or part of a dividend which is subsequently paid by the offeree company; or

23

(b) reduce the offer consideration by the amount of all or part of a dividend which is subsequently paid by the offeree company. However, where a potential offeror announces an increased possible or firm offer, it may, at that time, introduce a reservation of the right to reduce the offer consideration by the amount of all or part of a dividend which is subsequently paid by the offeree company, provided that it does not propose to reduce the offer consideration below the value of the previous possible offer which was not subject to the reservation. 5. Requirement to reduce the offer if the potential offeror has made a

statement to which Rule 2.5(a)(ii) applies and the offeree company pays a dividend

Where a potential offeror has made a statement to which Rule 2.5(a)(ii) applies and the offeree company subsequently pays a dividend, the potential offeror will normally then be required to reduce the offer consideration by an amount equal to the dividend so that the overall value receivable by the offeree company shareholders remains the same, unless a specific reservation was included in the relevant statement which provided that shareholders would be entitled to receive, in addition to the offer consideration, the specific dividend that was paid.

Rule 2.7

2.7 THE ANNOUNCEMENT OF A FIRM INTENTION TO MAKE AN OFFER

… NOTES ON RULE 2.7 … 4. Reserving the right to reduce the offer if the offeree company pays a

dividend An offeror may reserve the right in its firm offer announcement to reduce the offer consideration by the amount of all or part of a dividend which is subsequently paid by the offeree company, provided that any statement to which Rule 2.5(a)(i) applied included the same reservation. Where a reservation in relation to the payment of a dividend is not included in a firm offer announcement, the offeror will not normally be permitted to: (a) reserve the right in a subsequent offer document to reduce the offer consideration by the amount of all or part of a dividend which is subsequently paid by the offeree company; or

24

(b) reduce the offer consideration by the amount of all or part of a dividend which is subsequently paid by the offeree company. However, where an offeror announces an increased offer, it may, at that time, introduce a reservation of the right to reduce the offer consideration by the amount of all or part of a dividend which is subsequently paid by the offeree company, provided that it does not reduce the offer consideration below the value of the previous offer which was not subject to the reservation. If an offeror includes a term of its offer which provides that it shall be entitled to receive any dividend paid by the offeree company after a specified date, it must expressly reserve the right to reduce the offer consideration by the amount of the dividend in accordance with this Note.

Rule 6

RULE 6. ACQUISITIONS RESULTING IN AN OBLIGATION TO OFFER A MINIMUM LEVEL OF CONSIDERATION

… NOTES ON RULE 6 … 5. Cum dividend When accepting shareholders are entitled under the offer to retain a dividend declared or forecast by the offeree company but not yet paid, purchases in the market or otherwise by an offeror or any person acting in concert with it may be made at prices up to the net cum dividend equivalent of the offer value without necessitating any revision of the offer. Where the offeror or any person acting in concert with it proposes to acquire an interest in shares in reliance on this Note other than by purchasing shares, the Panel should be consulted. 5. Treatment of dividends (a) Dividends which accepting shareholders are entitled to receive and

retain When accepting shareholders are entitled under the offer to receive and retain, in addition to the offer consideration, a dividend which has been announced by the offeree company but the “ex dividend” date has not yet occurred: (i) the offeror, in establishing the minimum level of the offer, may deduct from the highest price paid by it (or any person acting in concert with it) during

25

the relevant period to which the Rule applies the amount of the dividend to which offeree company shareholders are entitled; and (ii) once an offer value has been announced, purchases in the market or otherwise during the “cum dividend” period by the offeror (or any person acting in concert with it) may be made at prices up to the aggregate of the offer value and the amount of the dividend without necessitating any revision of the offer. However, purchases in the market or otherwise after the “ex dividend” date by an offeror (or any person acting in concert with it) may only be made at prices up to the amount of the offer value without necessitating any revision of the offer. (b) Dividends which accepting shareholders are not entitled to receive and

retain When accepting shareholders are not entitled under the offer to receive and retain, in addition to the offer consideration, a dividend which has been announced by the offeree company: (i) the offeror, in establishing the minimum level of the offer, may not deduct from the highest price paid by it (or any person acting in concert with it) during the relevant period to which the Rule applies the amount of the dividend; and (ii) once an offer value has been announced, purchases in the market or otherwise during the “cum dividend” period by the offeror (or any person acting in concert with it) may be made at prices up to the offer value without necessitating any revision of the offer. However, purchases in the market or otherwise after the “ex dividend” date by an offeror (or any person acting in concert with it) may only be made at prices up to the offer value less the amount of the dividend without necessitating any revision of the offer.

Rule 9.5

9.5 CONSIDERATION TO BE OFFERED … NOTES ON RULE 9.5 … 4. Cum dividend When accepting shareholders are entitled under the offer to retain a dividend declared or forecast by the offeree company but not yet paid, the offeror, in

26

establishing the level of the cash offer, may deduct from the highest price paid the net dividend to which offeree company shareholders are entitled. Where the offeror or any person acting in concert with it has acquired any interest in shares to which this Note may be relevant other than by purchasing shares, the Panel should be consulted. 4. Treatment of dividends See Note 5 on Rule 6.

Rule 11.1

11.1 WHEN A CASH OFFER IS REQUIRED … NOTES ON RULE 11.1 … 9. Cum dividend When accepting shareholders are entitled under the offer to retain a dividend declared or forecast by the offeree company but not yet paid, the offeror, in establishing the level of the cash offer, may deduct from the highest price paid the net dividend to which offeree company shareholders are entitled. Where the offeror or any person acting in concert with it has acquired any interest in shares to which this Note may be relevant other than by purchasing shares, the Panel should be consulted. 9. Treatment of dividends See Note 5 on Rule 6.

Rule 24.3

24.3 FINANCIAL AND OTHER INFORMATION ON THE OFFEROR, THE OFFEREE COMPANY AND THE OFFER

Except with the consent of the Panel: … (d) the offer document (including, where relevant, any revised offer document) must include:

27

… (iv) details of each class of security for which the offer is made, including whether those securities will be transferred “cum” or “ex” any dividend and the maximum and minimum percentages of those securities which the offeror undertakes to acquire (see Note 5);

… NOTES ON RULE 24.3 … 5. Reserving the right to reduce the offer if the offeree company pays a

dividend An offeror may reserve the right to reduce the offer consideration by the amount of all or part of a dividend which is subsequently paid by the offeree company, provided that any statement to which Rule 2.5(a)(i) applied and the firm offer announcement included the same reservation. Where a reservation in relation to the payment of a dividend is not included in an offer document, the offeror will not normally be permitted to reduce the offer consideration by the amount of all or part of a dividend which is subsequently paid by the offeree company. However, where an offeror announces an increased offer, it may, at that time, introduce a reservation of the right to reduce the offer consideration by the amount of all or part of a dividend which is subsequently paid by the offeree company, provided that it does not reduce the offer consideration below the value of the previous offer which was not subject to the reservation. If an offeror includes a term of its offer which provides that it shall be entitled to receive any dividend paid by the offeree company after a specified date, it must expressly reserve the right to reduce the offer consideration by the amount of the dividend in accordance with this Note.

Rule 32.2

32.2 NO INCREASE STATEMENTS … NOTES ON RULE 32.2 …

28

6. Requirement to reduce the offer if the offeror has made a “no increase statement” and the offeree company pays a dividend

Where an offeror has made a “no increase statement” and the offeree company subsequently pays a dividend, the offeror will normally then be required to reduce the offer consideration by an amount equal to the dividend so that the overall value receivable by the offeree company shareholders remains the same, unless a specific reservation was included in the relevant statement which provided that shareholders would be entitled to receive, in addition to the offer consideration, the specific dividend that was paid.

29

APPENDIX B

List of questions

Q1 Should Note 4 on Rule 2.5, Note 4 on Rule 2.7 and Note 5 on Rule 24.3 be

introduced, and Note 1 on Rule 2.5 amended, as proposed?

Q2 Should Note 5 on Rule 2.5 and Note 6 on Rule 32.2 be introduced as

proposed?

Q3 Should Note 5 on Rule 6, Note 4 on Rule 9.5 and Note 9 on Rule 11.1 be

amended as proposed?

30

APPENDIX C

Draft Practice Statement

PRACTICE STATEMENT NO [•]

DIVIDENDS

1. Introduction

1.1 This Practice Statement explains the Panel Executive’s practice with regard to:

(a) permitting an offeror to reserve the right to reduce the offer consideration

if the offeree company pays a dividend;

(b) requiring the offer consideration to be reduced where a dividend is paid by

the offeree company after the offeror has made a “no increase statement”;

(c) calculating the maximum price at which an offeror may purchase offeree

company shares without having to increase its offer under Rules 6, 9.5 or

11.1 where the shares are trading “cum dividend” or “ex dividend”; and

(d) the application of Rule 21.2 in prohibiting an offeree company (or any

person acting in concert with it) from entering into an agreement with an

offeror (or any person acting in concert with it) in relation to the payment

of dividends by the offeree company.

1.2 References in this Practice Statement to the following expressions have the

following meanings:

(a) “cum dividend”: shares which trade “cum dividend” carry the right to

receive a particular dividend which has been announced. Shares trade on

this basis from the date on which the dividend is announced until the “ex

dividend” date relating to the dividend; and

31

(b) “ex dividend”: shares which trade “ex dividend” do not carry the right to

receive the relevant dividend. Shares trade on this basis from the “ex

dividend” date relating to the dividend until the date on which it is paid.


(a) Introduction

2.1 The payment of a dividend by an offeree company may affect the financial terms

on which an offeror wishes to make or proceed with an offer. In particular, an

offeror will usually wish to protect itself against value leakage from the offeree

company caused by the payment of a dividend by reserving the right to reduce the

offer consideration if a dividend is paid to offeree company shareholders.

However, an offeror may be prepared to allow offeree company shareholders to

receive a specific dividend in addition to receiving the offer consideration.

(b) Possible offer announcements

2.2 Rule 2.5(a) provides that the Panel must be consulted in advance if, prior to the

announcement of a firm intention to make an offer, any person proposes to make

a statement in relation to the terms on which an offer might be made for the

offeree company. If a potential offeror makes such a statement (or agrees to the

offeree company making such a statement) and it is not withdrawn immediately if

incorrect, the potential offeror will be bound by the statement if an offer for the

offeree company is subsequently made, except:

(a) where it specifically reserved the right not to be so bound in certain

circumstances at the time the statement was made and those circumstances



2.3 The purpose of Rule 2.5(a) is to ensure that market participants are able to rely on

statements made by a potential offeror in relation to the value of its possible offer

32

and to make their investment decisions on the basis that any offer, if made, will

not be less than the amount stated (save where a specific reservation applies or in

wholly exceptional circumstances).

2.4 Note 4 on Rule 2.5 provides that a potential offeror may, in a statement to which

Rule 2.5(a)(i) applies, reserve the right to reduce the offer consideration by the

amount of all or part of a dividend which is subsequently paid by the offeree

company.

2.5 A potential offeror which is making a statement to which Rule 2.5(a)(i) applies

after the offeree company has announced a dividend and while the shares are still

trading “cum dividend” will normally state whether the offeree company

shareholders will be entitled to receive the dividend in addition to the offer

consideration. In addition, a potential offeror may wish to reserve the right to

reduce the offer consideration by the amount of all or part of any dividend which

may subsequently be announced and paid by the offeree company during the offer

period.

2.6 In accordance with the first paragraph of Note 1 on Rule 2.5, the first

announcement in which a statement subject to Rule 2.5(a)(i) is made must contain

prominent reference to any reservation to reduce the offer consideration if a

dividend is paid by the offeree company (together with any other reservation to

set the statement aside). In addition, any subsequent mention of the terms of the

possible offer must be accompanied by a reference to the reservation. Any

reservation should be expressed in clear terms so that offeree company

shareholders are able to understand the effect that the payment of a dividend by

the offeree company will have on the terms of the possible offer if the offeror

subsequently exercises the right to reduce the offer consideration.

2.7 As provided in Note 4 on Rule 2.5, where the potential offeror makes a statement

to which Rule 2.5(a)(i) applies (or the offeree company makes such a statement

with the offeror’s agreement) but does not reserve the right for the potential

33

offeror to reduce the offer consideration if the offeree company subsequently pays

a dividend, the potential offeror will not normally be permitted to:

(a) reserve the right, in any subsequent firm offer announcement or offer

document, to reduce the offer consideration by the amount of all or part of

a dividend which is subsequently paid by the offeree company; or

(b) reduce the offer consideration by the amount of all or part of a dividend


2.8 Accordingly, it is extremely important that a potential offeror which is

considering making a statement (or consenting to the offeree company making a

statement) to which Rule 2.5(a)(i) applies ensures that an appropriate reservation

is included in that statement if it wishes to be able to reduce the offer

consideration if a dividend is subsequently paid by the offeree company.

2.9 However, as provided in the final paragraph of Note 4 on Rule 2.5, where a

potential offeror announces an increased possible or firm offer, it may, at that

time, introduce a reservation of the right to reduce the offer consideration by the


company, provided that it does not propose to reduce the offer consideration

below the value of the previous offer which was not subject to the reservation.

2.10 If, on the date on which the potential offeror makes a statement to which Rule

2.5(a) applies, the offeree company shares are already trading “ex dividend”, the

potential offeror will normally be expected to ensure that the offer terms take into

account the shareholders’ entitlements to the dividend, rather than include a

reservation to reduce the offer consideration by the amount of the dividend.

(c) Firm offer announcements and offer documents

2.11 Note 4 on Rule 2.7 provides that an offeror may reserve the right in its firm offer

announcement to reduce the offer consideration by the amount of all or part of a

dividend which is subsequently paid by the offeree company, provided that any

34

statement to which Rule 2.5(a)(i) applied included the same reservation. A

similar provision is set out in Note 5 on Rule 24.3 in relation to offer documents.

2.12 Any reservation should be expressed in clear terms so that offeree company

shareholders are able to understand the effect that the payment of a dividend by

the offeree company will have on the terms of the offer if the offeror subsequently

exercises the right to reduce the offer consideration.

2.13 As provided in Note 4 on Rule 2.7 and Note 5 on Rule 24.3, where a reservation

in relation to the payment of a dividend is not included in a firm offer

announcement or offer document, the offeror will not normally be permitted to

reduce the offer consideration by the amount of all or part of a dividend which is

subsequently paid by the offeree company.

2.14 However, where an offeror announces an increased offer, the offeror may, at that

time, introduce a reservation of the right to reduce the offer consideration by the


company, provided that it does not reduce the offer consideration below the value

of the previous offer which was not subject to the reservation.

2.15 As provided in Note 4 on Rule 2.7 and Note 5 on Rule 24.3, if an offeror includes

a term of its offer which provides that it shall be entitled to receive any dividend

paid by the offeree company after a specified date, it must expressly reserve the

right to reduce the offer consideration by the amount of the dividend. This is to

ensure that, if an offeror wishes to reduce the offer consideration by the amount of

any dividend which is paid to offeree company shareholders, it will do so

pursuant to the exercise of a clear reservation of the right to reduce the offer

consideration, rather than pursuant to a term which does not expressly refer to the

effect of the payment of any dividend on the offer consideration.

(d) Offer condition not normally regarded as a reservation of the right to reduce

the offer consideration

35

2.16 Where an offeror includes a condition to its offer that the offeree company will

not pay a dividend or other distribution (but does not reserve the right to reduce

the offer consideration), the Executive will not normally consider that the

condition would, of itself, provide an adequate basis for reducing the offer

consideration if a dividend or other distribution is subsequently paid.

2.17 In addition, given the high standard of materiality required to invoke a condition

under Rule 13.5(a), a condition to an offer which provides that the offeree

company will not pay a dividend or other distribution is unlikely to be capable of

being invoked unless the dividend or distribution is especially large and

unexpected.

2.18 The payment of a dividend may be subject to the restrictions set out in Rule 21.1

in relation to frustrating action. However, given that a dividend may be capable

of being approved for the purposes of Rule 21.1 by offeree company shareholders

in general meeting, Rule 21.1 may not be considered by an offeror to provide

adequate protection against value leakage arising from the payment of dividends.

Accordingly, an offeror which requires such protection should ensure that it

reserves the right to reduce the offer consideration if a dividend is paid in the

manner set out above.

(e) Exercising a right to reduce the offer consideration if a dividend is paid

2.19 Where, in a possible offer announcement, firm offer announcement or offer

document, the offeror reserves the right to reduce the offer consideration if the

offeree company pays a dividend and the offeree company subsequently

announces an intention to pay or recommend a dividend, the Executive will

normally require the offeror to make an announcement as soon as possible after

the offeree company’s announcement of the dividend. The offeror’s

announcement should state whether the right to reduce the offer consideration will

be exercised if the dividend is paid and, if it will, state the revised consideration

which will then be payable under the offer or possible offer.

36

2.20 In addition, if, following the announcement of a firm offer, the offeror announces

its intention to exercise the right to reduce the offer consideration if an announced

dividend is paid, the Executive may require the offeror to send a document to

offeree company shareholders.

2.21 If, following the announcement of a dividend by the offeree company, the offeror

announces its intention to reduce the offer consideration but the dividend is not

ultimately paid, the offeror will not be permitted to reduce the offer consideration.

(f) Non-cash consideration

2.22 Where a securities exchange offeror reserves the right to reduce the offer

consideration if the offeree company pays a dividend and the offeror subsequently

exercises that right, the amount by which the consideration securities shall be

reduced will normally be calculated by reference to the value of those securities

as at the close of trading on the day before the offeror’s announcement that the

offer consideration is to be reduced.

(g) Set-off

2.23 The exercise by an offeror of any right it has reserved to reduce the offer

consideration if a dividend is paid will not be regarded by the Executive as a set-

off which is prohibited under Rule 24.12.


3.1 If a potential offeror states that the terms of a possible offer “will not be

increased” or are “final” or uses a similar expression, Rule 2.5(a)(ii) provides that

the potential offeror will not be allowed subsequently to make an offer on better

terms, except:

(a) where it specifically reserved the right not to be so bound in certain



37


3.2 Similarly, if an offeror which has announced a firm offer makes such a “no

increase statement”, Rule 32.2 provides that the offeror will not be allowed

subsequently to amend the terms of its offer in any way, even if the amendment

would not result in an increase in the value of the offer, except:

(a) where the offeror specifically reserved the right to do so in certain




3.3 The Executive considers that market participants should be entitled to rely on

such statements and to make their investment decisions on the basis that the offer

is final and that additional value above the stated final offer price will not be

provided to offeree company shareholders under the offer or otherwise.

Consistent with this principle, Note 5 on Rule 2.5 and Note 6 on Rule 32.2

provide that, where a potential offeror has made a statement to which Rule

2.5(a)(ii) applies or an offeror has made a “no increase statement” and the offeree

company subsequently pays a dividend, the potential offeror or offeror will

normally then be required to reduce the offer consideration by an amount equal to

the dividend so that the overall value receivable by the offeree company

shareholders remains the same, unless a specific reservation was included in the

relevant statement which provided that shareholders would be entitled to receive,

in addition to the offer consideration, the specific dividend that was paid. The

Executive considers that such a reduction in the offer consideration would

normally be required to be made even where the offeror had not previously

reserved the right to reduce the consideration if the offeree company were to pay a

dividend.

38

4. Impact of dividends on a minimum offer price established by share

purchases

(a) Purchasing shares “cum dividend” or “ex dividend”

4.1 Rules 6, 9.5 and 11.1 set out the circumstances in which acquisitions of interests

in shares in an offeree company by an offeror (or any person acting in concert

with it) will determine the minimum amount and form of consideration which

must be offered under the terms of an offer.

4.2 Note 5 on Rule 6 sets out how dividends are to be treated in calculating the

minimum offer consideration. Note 5 seeks to ensure that all offeree company

shareholders receive the same value for their shares, regardless of whether they

sell their shares to the offeror “cum dividend” or, alternatively, receive the

dividend, accept the offer and transfer their shares to the offeror “ex dividend”.

4.3 Note 5(a) on Rule 6 provides that, when accepting shareholders are entitled under

the offer to receive and retain, in addition to the offer consideration, a dividend

which has been announced by the offeree company but the “ex dividend” date has

not yet occurred:

(a) the offeror, in establishing the minimum level of the offer, may deduct


during the relevant period to which the Rule applies the amount of the

dividend to which offeree company shareholders are entitled; and


otherwise during the “cum dividend” period by the offeror (or any person

acting in concert with it) may be made at prices up to the aggregate of the

offer value and the amount of the dividend without necessitating any

revision of the offer.

39

However, purchases in the market or otherwise after the “ex dividend” date by an

offeror (or any person acting in concert with it) may only be made at prices up to

the amount of the offer value without necessitating any revision of the offer.

4.4 Note 5(b) on Rule 6 provides that, when accepting shareholders are not entitled

under the offer to receive and retain, in addition to the offer consideration, a

dividend which has been announced by the offeree company:

(a) the offeror, in establishing the minimum level of the offer, may not deduct


during the relevant period to which the Rule applies the amount of the

dividend; and


otherwise during the “cum dividend” period by an offeror (or any person

acting in concert with it) may be made at prices up to the offer value

without necessitating any revision of the offer.

However, purchases in the market or otherwise after the “ex dividend” date by an

offeror (or any person acting in concert with it) may only be made at prices up to

the offer value less the amount of the dividend without necessitating any revision

of the offer.

4.5 Note 5 on Rule 6 also applies to Rule 9.5 (by virtue of Note 4 on Rule 9.5) and

Rule 11.1 (by virtue of Note 9 on Rule 11.1).

4.6 Accordingly, if, for example, the offeror is offering consideration of 100 pence in

cash and, under the terms of the offer, offeree company shareholders are entitled

to receive an announced dividend of 2 pence per share in addition to the offer

consideration, the offeror will be permitted to purchase shares which are trading

“cum dividend” for up to 102 pence without being required to increase its offer

under any of Rules 6, 9.5 or 11.1. However, after the shares commence trading

“ex dividend”, the offeror will only be permitted to purchase shares for up to 100

pence if it is to avoid being required to increase its offer.

40

4.7 Similarly, if the offeror is offering consideration of 100 pence per share in cash

and, under the terms of the offer, offeree company shareholders are not entitled to

receive a dividend of 2 pence per share in addition to the offer consideration, the

offeror may purchase shares which are trading cum dividend for up to 100 pence

without being required to increase its offer.

4.8 If offeree company shareholders are not entitled under the terms of the offer to

receive a dividend in addition to the offer consideration but nevertheless become

entitled to receive the dividend by virtue of being on the register of members on

the dividend record date, the offeror may decide to reduce the offer consideration

by the amount of the dividend, provided that it had reserved the right to do so. If

the offer consideration is so reduced, the offeror will be permitted to acquire

shares after the ex dividend date for up to only 98 pence if it is to avoid being

required to increase its offer. This is because, following the ex dividend date,

shareholders will have become entitled to the 2 pence dividend which, when

added to the 98 pence purchase price, would result in a selling shareholder

receiving an aggregate of 100 pence per share. Alternatively, provided the offeror

has not made a “no increase statement”, the offeror may decide to revise its offer

so as to allow offeree company shareholders to keep the 2 pence dividend in

addition to the 100 pence offer consideration, in which event the offeror will be

permitted to acquire shares after the ex dividend date for up to 100 pence without

being required to increase its offer.

(b) Consequences of purchasing shares when a dividend has been announced but

is not ultimately paid

4.9 If a dividend is announced but not ultimately paid, there is a risk that offeree

company shareholders will not be treated equally if an offeror purchases shares on

a “cum dividend” basis.

4.10 Therefore, if, in the example given in paragraph 4.6 above, the offeror purchases

shares “cum dividend” for 102 pence and the dividend which was announced is

not subsequently paid to offeree company shareholders (e.g. if shareholders

41

resolve not to approve the dividend), the Executive’s practice is then to require

the offeror to increase its offer from 100 pence to 102 pence in order to ensure

that offeree company shareholders who accept the offer (and do not ultimately

receive the dividend) receive the same value for their shares as those offeree

company shareholders who had previously sold their shares to the offeror at 102

pence.

5. Prohibition of offer-related arrangements in respect of dividends

5.1 Rule 21.2(a) provides that, except with the consent of the Panel, neither the

offeree company nor any person acting in concert with it may enter into any offer-

related arrangement with either the offeror or any person acting in concert with it

during an offer period or when an offer is reasonably in contemplation.

5.2 The prohibition in Rule 21.2(a) is broad and subject only to the limited exceptions

set out in Rule 21.2(b), none of which permit arrangements concerning the

payment of dividends. Accordingly, the Executive applies Rule 21.2(a) so as to

prohibit an offeree company (or any person acting in concert with it) from

entering into an arrangement with the offeror (or any person acting in concert

with it) which relates to the payment of dividends by the offeree company. Such

prohibited arrangements include, for example, any undertaking given by the

offeree company to the offeror not to pay dividends, or not to pay dividends of

more than a specified amount, before the offer becomes wholly unconditional.

5.3 If an offeror wishes to protect itself against value leakage from the offeree

company caused by the payment of a dividend, it should do so by reserving the

right to reduce the offer consideration if a dividend is paid to offeree company

shareholders in the manner described above rather than by seeking to restrict the

board of the offeree company from paying dividends.

Practice Statements are issued by the Panel Executive to provide informal guidance to companies involved in takeovers and practitioners as to how the Executive normally interprets and applies relevant provisions of the Takeover Code in certain circumstances. Practice Statements do not form part of the Code. Accordingly, they are not binding on

42

the Executive or the Panel and are not a substitute for consulting the Executive to establish how the Code applies in a particular case. All Practice Statements issued by the Executive are available on the Panel’s website at www.thetakeoverpanel.org.uk.

[•] 2015

http://www.thetakeoverpanel.org.uk/

the takeover panel consultation paper issued by the … · 2019. 2. 22. · a statement in relation...

Documents